How did we get into this financial mess……..?

The American public is being fed a massive amount of false information on how this country has gotten into the current financial mess. Somehow, and I CAN NOT figure out how they have gotten away with it, the media is espousing that President Bush is solely responsible for the current mess. WHOA. BS. There are a lot of straws that have gone into breaking this camel’s back, but very darn few of them are attributable to GB. The facts are that this whole debacle can be traced back to a little change in the Community Reinvestment Act of 1977. This was a law that pressed local banks to make every effort to fulfill the needs of the communities in which they were located. (I.E. it was a way of pushing banks to make sure that their services were made available not only to the wealthiest in the community, but also to the average John Q. Public. In 1997, the Clinton administration pushed a change in this law which made two major changes. The first was a change in which the banks were graded on their success in achieving the goals pressed forward by this law. Originally, banks were graded on their EFFORT to reach into all areas of the local community. Advertising, development of programs to assist in savings for lower income customers, etc. etc. were originally used as measuring sticks to grade the banks efforts. This 1997 change turned the yard stick from an effort based system to a results based system. I.E. the banks’ grades would now be based on the total mortgages issued to lower income customers, dollars loaned to low income customers. The change basically made it MANDATORY that banks issue mortgages which they KNEW would be given to borrowers who would be more likely to default on them. (YOUR government at work folks) The second major change was to make it easier to file claims and suits against banks using their bad grades as justification that the banks were not meeting their obligation to the Fair Housing Act. Most of these claims started coming in from….. Guess…..THAT’S RIGHT…… most of these claims came in from urban, low income neighborhoods; and guess which CHICAGO based group was one of the main litigants in these suits……YOU WIN AGAIN…… Jessie Jackson’s Rainbow/Push community activist group. So guess what; banks were forced, by the U.S. Government no less, to placate to these extortionist groups (left wing – Democratic Party) by issuing bad loans to individuals and businesses that the banks knew would not be able to pay them back. And the locals loved it and Clinton and his ilk got all the credit.
Fast Forward to 1999. Bill Clinton (I still have a hard time calling him “President”) appointed Franklin Delano Raines to head up the newly privatized Fannie Mae. Raines set about making sure that congress would take a hands off approach in Fannie Mae’s efforts to enlarge their portfolio holdings by acquiring huge amounts of under qualified home loans. Fannie Mae and Freddie Mac are “supposed” to be monitored by the House Financial Services Committee. And guess who was the ranking member of the Democratic Party on that committee…….Rep. Barney Frank who is now being lauded by his fellow party members as the savior of our economy.

So the US economy goes about it’s merry way for a while. Everybody is happy; everybody is getting mortgages, house values are going out of the roof, people are refinancing every few years…..paying less and less of their principal and eventually guess what happens. THE HOUSING MARKET STOPS DEAD IN IT’S TRACKS. NO SH$@# SHERLOCK.

Money Managers as early as 2005 realized that the money funds which held these papers were borrowing more and more good money to maintain the bad loans that had been issued over the years. And as long as house values continued to trend upward, it wasn’t a problem. But in 2005, the housing market started to actually lose value. So now, people who had borrowed $500,000 dollars against a house that was appraised at $400,000 (the loan being made on the perception that the house would be worth $700,000 in a few years) were being forced to make payments on a house that was actually being valued at $300,000. Just take a look at the math in the last few sentences to see that it don’t add up (pardon my atrocious English skills). The preverbal chicken had come home to roost. Now, let’s don’t think than the powers that be did not see this coming. In fact some in power actually tried to prevent it. On May 25th of 2006. John McCain said…”I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.” So what is this Federal Housing Enterprise Regulatory Reform Act of 2005? The act had eight primary areas of concern. From the congressional summary page…

”Sets forth operating, administrative, and regulatory provisions of the Agency, including provisions respecting:
(1) assessment authority;
(2) authority to limit nonmission-related assets;
(3) minimum and critical capital levels;
(4) risk-based capital test;
(5) capital classifications and undercapitalized enterprises;
(6) enforcement actions and penalties;
(7) golden parachutes; and
(8) reporting.”

Areas 1,2,3 were an effort to fix the way that Fannie Mae, Freddie Mac had cooked their books to make their asset list look more viable. Areas 4 and 5 changed the way banks qualified loan prospects. Areas 6 and 8 are obvious and area 7 finally put some oversight on the multi million dollar payments to the top managers of these money funds.

Again, sounds good, right? Well by this time the Democratic Party owned both the House and the Senate and Chris Dodd never let this act get out of committee. Chris Dodd, by the way is the largest single recipient of moneys from Fannie Mac and Freddie Mae. “FOLLOW THE MONEY”.

So now, tell me who is to blame?

A few follow up on this.

Three gentlemen who were key players in the build up to this fiasco…

Franklin Delano Raines (see above)
Tim Howard (CFO of Fannie Mae until his “retirement” in 2004 under pressure from federal regulators who were investigating Fannie Mae’s bookkeeping and reporting integrity. His Golden Parachute was worth an estimated 20 MILLION Dollars)
Jim Johnson (former Lehman Brothers executive who also headed up Fannie Mae immediately following Raines and currently under investigation for making illegal loans via Countryside. His Golden Parachute was worth an estimated $28 million).

All three of these were key consultants to the Obama ’08 campaign.

If you think things are bad now, just wait until the top cats in the democratic party start divvying up the “bailout” money.